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The task of lowering the carbon footprint of US steel is entering a more challenging phase, with the industry seeking to measure and reduce its Scope 3 emissions – indirect emissions created by upstream and downstream activities beyond what a steelmaker has control over.
Greenhouse gas (GHG) emissions are categorized into three groups or “Scopes” by the most widely used international accounting tool, the Greenhouse Gas Protocol:
Rather than tackle everything under the broad umbrella of Scope 3, domestic steelmakers today are focusing on partnering with suppliers of scrap, iron, alloys and coal that are significant sources of greenhouse gases to cut emissions, according to market participants, industry sources and analysts who have studied the matter.
The US industry’s drive to improve operating efficiency is already delivering lower emissions, placing US steelmakers far ahead of most global peers in achieving a lower carbon footprint. Further investments are expected to reduce emissions even more, not only for the steelmakers directly but also for their providers, further enhancing the US industry’s image as the global leader in enhancing environmental sustainability.
For Nucor Corp, Scope 3 emissions from raw materials and the transportation required in collecting scrap and delivering it to the steelmaker does, in fact, exceed those of the company’s own Scope 1 emissions, the company has reported.
Success in reducing emissions upstream has the further advantage of working in conjunction with the company’s efforts to reduce its Scope 1 emissions in ways that reduce waste and make for a more efficient use of raw materials.
Behind the effort to lower emissions from Scopes 1, 2 and 3 is the desire of US steel companies to improve their long-term viability as an ongoing enterprise, according to Phil Gibbs, equity analyst at KeyBanc Capital Markets.
With record earnings in recent years under the protection of Section 232 tariffs, US steelmakers are in a position to make significant investments in new technology, Gibbs said. Their investments in new technology also come with the side benefit of lowering carbon emissions, “but that’s not the goal in itself; the goal is for you to stay alive and viable and sustainable,” he said.
By contrast, downstream activities represent a wider array of activities that may be more difficult to monitor and involve entities that have no direct tie to the company, and which may not be required to measure and report their emissions to the US Environmental Protection Agency.
Many steelmakers face the likelihood that they will soon be required to disclose Scope 3 emissions under a regulation proposed by the US Securities and Exchange Commission. The proposed rule, which has yet to be finalized, requires SEC-registered companies to disclose Scope 3 emissions if they are material or if a company has set emission goals that include Scope 3.
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In their quest to lower GHG emissions, US steelmakers start with emissions per tonne that are already “substantially lower” than those in Europe, according to Berk Birand, co-founder and chief executive officer of Fero Labs, a New York-based company offering machine learning software in the United States and Germany.
According to Kevin Dempsey, president and chief executive officer of the American Iron and Steel Institute (AISI), “The biggest US advantage is the fact that so much of its steel is produced in electric-arc furnaces (EAF), where many steel products can be made 100% from scrap.”
An AISI spokesperson identified rebar and structural steel sections as products that are “most often, but not always made with 100% recycled content.”
Dempsey highlighted several other significant advances made in recent years by US steelmakers, as well as ones that are on the horizon.
Cleveland-Cliffs pioneered the adoption of direct iron reduction in traditional steelmaking, building a DRI facility in Toledo, Ohio, that became fully operational last year.
Nearly 16 years ago, Nucor pioneered the use of cold DRI in EAF steelmaking. The company currently has two DRI plants that together can produce 4 million metric tons of DRI a year. One facility is in Point-Lisas, Trinidad and Tobago, started in 2006. The other is in Convent, Louisiana, started in 2013. DRI from the two plants “has enabled our EAFs to make more and more high-valued-added products where it was never considered viable,” a Nucor spokesperson said.
Currently, hydrogen production generates GHG emissions, Dempsey said. The next step would be to remove the carbon associated with hydrogen entirely from the process. To achieve that goal, “You would have to scale up renewable energy or nuclear [energy] to power hydrogen production facilities that would themselves be clean.”
Researchers are looking into setting up pilot projects to explore how to successfully and economically design a method to capture carbon as it is being produced and sequester it below ground where it will be released into the atmosphere, Dempsey explained.
ExxonMobile, for example, is assessing the concept of multi-user carbon capture and storage hubs in industrial areas near geological storage sites, such as depleted oil and gas reservoirs.Back to the top >
The benchmark for of all these efforts is a scientific construct called carbon dioxide equivalent, or CO2e; a measure of emissions from all greenhouse gases that absorb and re-emit heat and, thus, are seen as factors that may lead to global warming. The measure includes not just carbon dioxide (CO2), but also six other greenhouse gases: methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3).
Designating CO2e as the preferred metric allows for like-for-like comparisons of emissions of any combination of greenhouse gases from a wide variety of sources. The term was defined in 2007 under the Kyoto Protocol of the Intergovernmental Panel on Climate Change.
As steelmakers seek to become carbon neutral by 2050, the CO2e measure is the benchmark that allows them to target reductions on a timetable that can demonstrate their progress along the way.
Some major US steel producers earlier this year released detailed reports using data from 2021 to show their progress in reducing carbon intensity.
Nucor Corp, for example, reported a combined Scope 1 and 2 carbon intensity score of 0.43 tonnes of CO2e per tonne of steel produced in 2021 in a report titled “Corporate Social Responsibility 2021.” That’s roughly half the US average for steelmakers, and roughly one quarter of the global average of 1.72 tonnes of CO2e per tonne of steel produced. It’s also 27.12% lower than Nucor’s own 2015 levels.
That assessment was made by the London-based Transition Pathway Initiative using data sourced from the World Steel Association.
Nucor’s goal is to reduce its Scope 1 and 2 carbon emissions in 2030 by 35% from its 2015 levels. If achieved, that would bring its CO2e level to 0.38 tonnes per tonne of crude steel.
Nucor also reported its total 2021 upstream Scope 3 emissions associated with raw materials and transportation at 7.3 million tonnes of CO2e. This measure does not include downstream Scope 3 emissions. The upstream Scope 3 portion alone is greater than Nucor’s direct 7.1 million tonnes for Scope 1.
Nucor also reported 5.7 million tonnes for Scope 2, bringing total emissions to 20.1 million tonnes for 2021.
Nucor reported its carbon intensity for Scope 1, Scope 2 and Scope 3 upstream combined at 0.79 tonnes CO2e per tonne of steel produced in 2021, compared with an overall 1.89 tonnes CO2e per tonne of steel global average for all steel producers and 2.3 tonnes CO2e per tonne of steel for the global average for all blast furnace/basic oxygen furnace steel producers.Back to the top >
Cleveland-Cliffs reported on its emission reduction efforts in May in a publication titled “Sustainability Report 2021.” Last year the company’s combined Scope 1 and 2 GHG emissions stood at 34.2 million tonnes of CO2e, a decline of 22.45% from 44.1 million tonnes in 2017.
Cleveland-Cliffs has set a goal of reducing its GHG emissions by 25% by 2030 from 2017 levels.
The company’s progress in lowering its carbon footprint has been driven by a $1 billion investment in a new HBI plant in Toledo, Ohio, that was able to ramp up operations to achieve full production rates in 2021.
“Our increased consumption of scrap and our successful use of hot-briquetted iron in our furnaces to reduce coke rate, enhance productivity and quality, and stretch hot metal production, led to an overall reduction in carbon intensity per ton for 2021,” the company stated in its sustainability report.
The company has not released carbon intensity data.Back to the top >
One key approach to reducing emissions is to employ technology that allows a steel mill to lower the amount of energy (Scope 2) and water (Scope 3) used in the production process, Birand said.
“The biggest unnecessary cause of emissions” at any steel mill is the extraordinary amounts of energy and stored water that is used for making engineered steels, such as those used in the automotive sector, only to find that a product batch does not meet specifications and quality standards, Birand said.
“That steel output then has to be reworked — or worse yet, you have to start all over with a portion of the output from the factory recycled as scrap,” according to Birand.
When a batch of engineered steel does not measure up to quality standards, “you’ve just spent 60 kilograms of [electric] current and got nothing out of it,” the software consultant said.
Machine learning can help eliminate a lot of this waste, according to Birand. Sharply reducing waste in production has “huge upside consequences in emissions reduction” and can improve operating margins and reduce delays in shipments to customers.
Machine learning can also help reduce the raw materials needed to produce a given amount of steel — for example, the amounts of alloys used in the meltshop.
Machine learning can curtail the need for additional quantities of vanadium, niobium and manganese to make sure the produced steel will not fail quality tests. “[Having to add additional alloys] creates a huge additional cost because basically we are consuming more raw materials,” Birand said.
“Given that these raw materials have to be mined and be shipped or transported to the plant,” Birand explained; to the extent steelmakers can reduce the need for additional alloys, they can reduce Scope 3 emissions from these major sources of greenhouse gases.
Reducing the volume of alloys required to make steel not only lowers emissions, it can also act as financial incentive to US steelmakers to adopt machine learning, Birand explained.
Investment in machine learning requires a sufficient return on investment to be attractive to steelmakers, the software consultant said.Back to the top >
The broad framework that defines GHG emissions emerged from nonprofit organizations in the US and Europe over a period of decades before legislation was enacted requiring emissions disclosures in the US, followed by regulations governing those disclosures.
Companies based in the US are not currently required to report either Scope 2 or Scope 3 emissions, according to the US Environmental Protection Agency.
“At this time, individual steel facilities (not companies) report direct (i.e. Scope 1) process and combustion emissions to the EPA’s Greenhouse Gas Reporting Program,” an EPA official told Fastmarkets via e-mail. “Separately, many organizations may voluntarily participate in different non-federal registries or public disclosure programs and voluntarily report different scope emissions.”
The EPA has the authority to collect GHG data from “certain sources including large greenhouse gas emitters, fuel and industrial gas suppliers, and carbon dioxide injections sites in the United States,” the agency official explained. That authority was established in 2008 by Congress under Section 114 of the Clean Air Act.
The agency requires facilities or suppliers in 41 categories to submit annual reports reporting GHG emissions using methodologies “uniquely tailored to each individual industrial sector,” EPA stated.
Requirements affecting iron and steel production are specified in Title 40 of the Code of Federal Regulations Part 98 in Subpart Q.
“Once data are submitted, EPA conducts a multi-step verification process to ensure reported data are accurate, complete, and consistent,” the agency stated. The EPA then makes the data available to the public each fall through data portals on its website.
Only US-based facilities and operations are required to report emissions data to the EPA. In practice, that means that non-US raw material suppliers are not covered by the EPA reporting requirements. This includes products integral to the process of steel making, such pig iron, steel briquettes or semi-finished products like steel slab.
Market participants point to how reporting requirements can create counterintuitive incentives.
“Right now, you’re penalized for owning upstream versus buying upstream,” Birand said. Upstream operations owned by a US-based steelmaker must directly report their own emissions.
If the EPA were to mandate Scope 3 reporting, given that it only applies to US-based operations, it would create a “perverse” incentive to buy pig iron, steel briquettes and slab from overseas providers, Birand said. “You’ll have mostly an incentive to buy the largest, most polluting, cheapest feedstock so you’re paying someone else to emit on your behalf.”
If the steel industry could reach consensus on voluntarily reporting Scope 3 emissions, it would level the playing field between those who own upstream operations and those who do not, according to the consultant.
Currently, most steel companies voluntarily report Scope 2 emissions from utilities and energy providers, who are themselves required to collect and report their emissions to the EPA.
On June 17, the EPA issued proposed revisions to the Greenhouse Gas Reporting Rule to improve the quality and consistency of the data collected under the rule, as well as streamline implementation and clarify some of its provisions. Initially, the agency set August 22 as the deadline for comments on the proposal, but on July 29 it extended the deadline to October 6.Back to the top >
The steel industry is also facing potential Scope 3 emission reporting requirements from the Securities and Exchange Commission’s proposed Rules to Enhance and Standardize Climate-Related Disclosures for Investors.
The commission’s proposed rules were filed on March 21 with a May 31 deadline for comments, which was extended to June 17, at which point the SEC had received a stunning 14,645 comments, pro and con. Additional comments have continued to be filed on the proposal since June 17.
The agency is in the process of evaluating responses for possible revisions to its proposed rule and is expected to issue a final ruling by the end of the year.
The proposal would require publicly traded companies to disclose Scope 1 and 2 emissions. In addition, SEC-registered companies would have to report upstream and downstream Scope 3 emissions from activities in the value chain if those activities are either deemed to be “material” to the company’s operations or “if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions,” the agency stated in its proposal.
The proposed disclosures would provide investors with useful information to assess a company’s exposure and management of climate-rated risks, including risks during the transition to achieve sustainability, according to the SEC.
The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and include an exemption from the disclosure requirement for smaller companies, the agency said.
Representatives of the steel industry have voiced concerns about the proposed rule.
“While the goals of this proposal are well intentioned, it is not clear that these disclosure requirements should fall under the jurisdiction of the SEC,” said Philip K. Bell, president of the Steel Manufacturers Association.
There is also an issue of how private companies should be treated. “Requiring public companies to report their emissions data is not enough if private companies do not have to comply with the rule,” Bell said.
Steel leaders are concerned about how the SEC might implement the rule and “how this proposal will feasibly, fairly and adequately address Scope 3 emissions,” Bell said, noting there are a lot of methodologies for measuring Scope 3 emissions.
There is also the matter of obtaining cooperation from suppliers to provide Scope 3 emissions data, Bell said. “We must also acknowledge that many companies have limited control over what customers and other members of their supply chain are doing. Transparency and open information exchange will be vital.”Back to the top >
More steelmakers are likely to initiate voluntary reporting of Scope 3 emissions targeted to specific upstream segments, no matter what emerges from the SEC proposal, according to Dempsey at AISI.
Downstream reporting is another matter, Dempsey added, and presents far more challenges tracking the potential activities of end-users who purchase products made from steel.
Downstream reporting “would include the car company that makes a car and then include somebody else that drives the car,” the AISI official said.
Dempsey pointed to the requirement to report anything “material” to the SEC. “Material is one of those words that means different things to different people and lawyers spend a lot of time arguing about its significance.”
Some form of the proposed SEC rule is likely to be finalized by the end of 2022 and its adoption will lead various industrial segments to seek to better understand Scope 3 emissions of upstream providers, according to Dempsey.
For example, the auto industry will come to the steel industry to ask for the steel industry’s Scope 1 emissions, which will be Scope 3 emissions for the auto industry, the AISI official said.
“Likewise, the steel companies are going to their suppliers and asking questions, [such as:] What are your emissions? What are your plans to reduce that?” said Dempsey. “So, there’s going to be a lot of commercial customers incentivizing people [in upstream operations] to look for ways to reduce their emissions.”
Congress also could take steps to potentially overcome existing incentives that may make it attractive for steel buyers to import “dirty” steel made in China and elsewhere around the global, according to Dempsey.
One idea — a border carbon tax — is supported by AISI.
Other proposed policies to penalize “dirty” imported steel have gained support from American steel companies.
For example, last year two members of Congress — Senator Chris Coons and Representative Scott Peters — proposed legislation that would impose a $16 billion tax on imports from China and other nations that are not taking significant steps to reduce GHG emissions.
Such proposals could help “create a level playing field” between American steelmakers and foreign companies with higher emissions, as well as act as an incentive to generate more investments by US steelmakers in new, cleaner steel technology, Dempsey said.
The Coons-Peters proposal followed shortly after the unveiling of a 291-page proposal from the European Commission to establish a carbon border adjustment mechanism.
“If you don’t address the trade and carbon intensity problem, all that dirty steel from China could come and swamp the US industry,” Dempsey said.
China has shown it can be “very clever” and circumvent the Section 232 tariffs by working with a third nation to find a way to get steel made partly or mostly in China into the US market, according to Dempsey.
With or without more disclosure requirements or mandates, market participants mostly agree that the challenge of reducing Scope 3 emissions is likely to continue to command the attention of steel industry leaders and potentially affect strategic decisions they will face in the future.
All the efforts of US steelmakers to reduce carbon emissions may ultimately be of little overall consequence, according to Gibbs.
“If we share one global atmosphere and we’re going to spend all this money in the name of the organization to change global emissions outside of China and India by 2% or 3%, [while enterprises in China and India] are going to continue to crank up their production and emissions, [it will turn out that] the whole effort in a lot of cases is futile,” the analyst said.
Keep up with the green steel discussion by visiting our Green Steel Spotlight page. Learn more.Back to the top >